2003 (6) TMI 249 - AT - Central Excise

Summary

Issues:
- Duty liability on tow used in the manufacture of fibre
- Applicability of extended period of limitation
- Utilization of waste in the manufacture of fibre
- Imposition of penalty

Analysis:

Duty liability on tow used in the manufacture of fibre:
The appellant, engaged in manufacturing polyester staple fibre, cleared the fibre with or without duty payment for export or under specific exemptions. Duty was not payable on the tow used in the manufacture of fibre under the third proviso of Rule 9(1) of the Central Excise Rules. The notice demanded duty on tow utilized in ways other than duty payment between specific dates. The Tribunal found that duty would be payable on tow used for fibre cleared without duty under Notification 191/85. The appellant argued against the extended period of limitation, citing departmental knowledge and physical control over the factory.

Applicability of extended period of limitation:
The appellant contested the extended period of limitation, asserting the department's prior knowledge of tow utilization in fibre manufacture. Despite efforts, the department failed to justify the extended period. The notice issued earlier demanding duty on the entire quantity of tow used in fibre manufacturing, coupled with the factory's physical control and departmental knowledge, negated the applicability of the extended period of limitation.

Utilization of waste in the manufacture of fibre:
The waste generated in the fibre manufacturing process was deemed a technological inevitability by the Tribunal. The appellant could not produce fibre without waste. The waste tow was utilized in the fibre production process, aligning with the third proviso under Rule 9, supported by a Supreme Court judgment. Therefore, there was no basis for duty demand or penalty imposition.

Imposition of penalty:
The Tribunal allowed the appeal, setting aside the impugned order. The decision was in favor of the appellant, highlighting the utilization of waste in fibre manufacturing, the absence of duty liability on tow under specific provisions, and the lack of justification for imposing a penalty.